Editorial: Schadenfreude and Santayana

Further evidence of financial meltdown swirling around B6 became further apparent today after news broke of an unpaid tax bill. According to various reports £4.2million was owed to Her Majesty’s Revenue and Customs, with the taxman threatening a winding up order if payment is not made within seven days.

Suffice it to say, it’s caused a whole storm of messages on social media and messageboards. While some fans of the mob from across the expressway tried to console themselves that this was another blip in their glorious history, others have started to realise in the manner that many Blues fans have that there is real trouble in B6 right now.

The suspension of Keith Wyness from his role as CEO, with the subsequent assumption of the role by Chairman and owner Tony Xia have only increased the rumours as to what has gone on.

I can’t help but think of how much the current crisis in B6 is reminiscent of some of the woes Blues went through under Carson Yeung.

Furthermore, I think that it’s important for us to understand just why things have gone so pear-shaped in B6 so we can guard against it happening to us.

When Carson was arrested in 2011, things went very weird, very quickly.

Trading in Birmingham International Holdings shares (as the company was then called) was suspended and Blues fans openly wondered what it meant for the club having just suffered relegation to the Championship.

It took a long time to get out from the trouble that caused us. It took a boardroom battle and the appointment of Receivers in Hong Kong to prise the club from Carson’s grasp – and even now we don’t fully understand everything about who owns BCFC.

But the warning signs were there even before he was arrested. The company had struggled to raise money in the months immediately preceding relegation, and all the fancy plans of Carson had come to absolute zero fruition.

A man who had come to St Andrew’s promising riches ended up forcing the club to run on a shoestring while he fought a losing battle in the courts of Hong Kong.

As someone who had seen up close the mess Blues had gone through, I’ll admit I was immediately suspicious of Xia. Nothing stood up – and when something seems to be too good to be true, it often is.

Like Carson, Xia was quick to make good on his promises of spending money.

Huge amounts of money were spent on players to seal the dream of an immediate dream to the top flight, with Champion’s League football to follow in five years.

Roberto di Matteo lasted just four months in the role as manager. Players brought in on huge wage and transfer fees failed to live up to the hype, and they finished 13th in their first season.

Despite rumours I’d heard that they were running out of money in May 2017, they spent huge money again. John Terry came into the club on a reputed £80,000 a week contract, while Robert Snodgrass signed on loan with Xia picking up the whole of his £70,000 a week wages from West Ham.

This time they came much closer. They got all the way to Wembley and the playoff final but couldn’t find their way past Fulham – a team who had lost 3-1 to Blues only a couple of weeks before.

There’d been massive rumours doing the rounds in media circles that failure in the playoff final would bring financial meltdown to B6.

Within a few days the club were forced to announce things had to change, that money was going to be tight due to FFP restrictions – but that all now looks like a cover for the true financial meltdown that has hit them.

I’ve spoken before about how the restrictions on capital outflow have affected Chinese businesses investing abroad. For clubs with Chinese owners, it is now imperative that those owners have access to money outside of China else they will be in trouble.

Reports have already emerged that Xia is having to take a loan out to pay the tax bill – which will have to be secured on UK property such as the Bodymoor Heath training ground.

What’s worse is there are now multiple reports in China alleging that Xia’s listed companies are not in the financial health that they were purported to be – and that he is no longer in control of any of them.

There has to be some sort of question as to how much money Xia has got, how much he has got access to and how quickly he can access it.

Cashflow is clearly a problem for our friends across the Expressway and as any businessman will tell you, cashflow problems can kill a business quickly.

I’ve long said that the benefactor model of football ownership doesn’t work. This is because when something stops the benefactor contributing – which always happens, as money is a finite resource – then the club is left trying to work out how to fund themselves.

The more in hock a club is to a benefactor, the higher their bills they have run up, the worse it gets.

This is the fate that has befallen our friends in B6.

They have a short period of time now to bring in money to cover any shortfall, to reduce costs drastically and prepare for the new season.

Furthermore, they have to do it in a market where everyone of their competitors knows they’re in financial trouble and will take advantage of that when making offers for players.

Blues had a spell when they had a wage cap of £5,000 per week to get their costs down to a reasonable level, with just one player – Nikola Zigic – on a legacy contract from the Premier League.

Footballers cannot have their contracts ripped up like ordinary employees. Whoever takes over from Keith Wyness – if anyone does take over – will potentially have to negotiate payoffs just to get those contracts off the books.

Players with expensive contracts that have elapsed such as Alan Hutton will not have their deals renewed.

They will have to be replaced by players on far lower salaries. This will make promotion a much more difficult attainable target for Xia – and further lower his chance of getting any return on what he has invested in the club.

I’ve always been proud of the way Blues acted during the Carson years. While it was hard, the staff did everything possible to minimise outgoings and to keep the club going on an even keel. However, the corollary of that is that allowed Carson to hang onto the club for longer than most people wanted him to – and has maybe contributed to our own uncertainty over ownership now.

It might not seem it now, but administration might be the short-term solution to their problems as it would definitely prise the club out of the grasp of Xia and force the sale to someone the creditors want, rather than Xia.

Consortiums of that ilk aren’t in it for the benefits of the fans. They will look to buy the club at distress prices, invest as little as possible to right the ship and then flip it onto the next bidder.

Administration isn’t something that is solved overnight and takeovers take time. This route – with the points deduction that comes with it – would be exceptionally painful in the short term and could even cause medium-term damage to the prospects of the club.

I know some people see me as a professional sticky beak; someone with way too much interest in the mundane side of football – and it’s true.

However, the reason I go on and on about football ownership; the reason why I try to understand and report on what is happening is because I believe forewarned is forearmed.

Blues fans took the Carson years on the chin and got on with it. We didn’t delude ourselves that everything was going to be fine just because we were “a big club”.

The biggest challenge our rivals across the expressway have right now is to accept that this is happening to them, and to deal with it.

The reason I’m enjoying this moment of schadenfreude right now is because I saw this coming – and I’m remembering every one of them who told me I didn’t know what I was talking about.